Friday, February 20, 2015

With an increasing world population and a desire for prosperity for all, it becomes ever more clear that not only primary energy sources such as oil are in decline, but that we are likely moving towards a 'peak everything' scenario as GMO's Grantham pointed out in 2011. Whether we agree with the data points and time lines in the scenario or not, we must confess that there are clear limits of the linear consumption flow of 'take - make - dispose'. Not only are we rapidly exploiting natural resources for short-lived consumer goods, we also do not have any answer to their final destination but the landfill. This is bad news on both ends: the sourcing and the disposition.

We clearly need a new model. Not only is this environmentally mandated, but also makes economic sense. Here is where the concept of a circular economy comes in. Certainly not a new idea, it seems to now gain some real momentum as companies realize that rising resource prices and possible disruptions of the supply chain can pose direct risk to their bottom line. The amount of embedded energy, labor and material cost in each product is simply too high to discard in the linear flow. And that does not even consider the externalized environmental cost (GHG emissions, waste, etc.).

The circular model has recently been formalized by the Ellen MacArthur foundation. Former global solo sailor MacArthur has united the forces of many large multinationals to define and put in practice the concept of a circular economy. The foundation provides a solid set of research documents and case studies and brings together professionals to jointly work towards this model. Even the 2015 world economic forum in Davos had a dedicated track for the circular economy with William McDonough leading the program.

So, what is this about? While this is a much deeper topic, I will try to give a high-level overview.

As defined by Braungart / McDonough the cradle-to-cradle design philosophy distinguishes between products of consumption (such as shampoo, cleaning products, etc.) and products of service (such as cars, phones, printers, etc.). For the latter, the circular model differentiates between biological and technical product components. Focusing on the technical 'nutrients', products should be designed with the following goals:

we are users, not consumers: instead of acquiring a product from a vendor, we only get the right to use for its useful life. This shift in ownership ensures that the technical nutrients are entirely returned to the manufacturer for upcycling.

the principle of circularity: products should be able to be first repaired by the user, then maintained by a service provider, then reused or redistributed by the product manufacturer and finally refurbished or recycled by the parts manufacturer.

cascading use: products and components or materials should be designed to be able to function in various stages of their life. Today's cell phone processor could be a control unit in tomorrow's dishwasher.

modularity: to maximize the reclaim rate on recycling, products must use no blended or toxic materials. Period. And they must maximize modularity to support reuse and repair.

The concept of a circular economy is also met with the growing support for an access economy. Many of the things we source new today are already available, although not owned by the person in (temporary) need of the product. If we only had convenient and reliable access to a product for use, we would not need to buy it. This is also the driving concept behind all forms of the sharing economy that is taking off in many industries from ride/car sharing to couch surfing to sharing anything on snapgoods/simplist.

If these concepts have been around for a while, why is it now making a difference? Here are some reasons:

I believe the increasing resource scarcity will force consumer goods companies to look at their supply chains for circular potential. According to MacArthur research, this is an almost unprecedented savings opportunity.

IT systems can now trace materials through the supply chain and optimize their use efficiently. This also leads to new accounting models tracking circularity (such as material flow cost accounting).

The next generation of consumers will question the very assumption of consumption and qualify themselves as users in a sharing economy. Although psychologically not intuitive, there is no implicit reduction in prosperity when sharing.

Social media can advocate circular products much faster and compete with traditional linear product marketing which silences all negative consumption consequences.

These factors will make for a very interesting decade where new circular products will emerge and challenge the status quo of our wasteful linear flow.